An Indian 2,000 rupee, bottom, and 500 rupee banknotes are arranged for a photograph. (Photographer: Brent Lewin/Bloomberg)

Draghi Cautions Global Factors Matter for Growth: IMF Update

(Bloomberg) -- Mounting trade tensions and stresses in emerging markets are starting to take a toll on the world economy. The International Monetary Fund this week said world growth is plateauing and cut its outlook for first time since 2016. Those issues are dominating talks at the annual IMF and World Bank meetings in Bali, Indonesia this week, as well as a stock-market rout that’s spread from the U.S. to Asia.

Here are the latest developments from the meetings, updated throughout the day. (Time-stamps are local time in Bali.)

Draghi Cautions Global Factors Matter for Growth (5:40 p.m.)

While policy makers from the euro area have been down playing the risk that protectionism poses for the domestic economy at this moment, European Central Bank President Mario Draghi offered a gentle reminder on Friday that the region’s economic success does not run in isolation to external factors.

“The positive developments in the euro area are not independent of the global growth momentum,” he told the International Monetary and Financial Committee. “Open trade, investment and sustainable financial flows play a key role in enhancing productivity.”

He stressed that preserving openness is crucial if the global economy is to thrive and secure its growth potential. ECB officials have so far held off from sounding the alarm on risks including trade, Brexit, and political turmoil in Italy as they focus on justifying a cap on additional stimulus by year-end.

S&P Gives Hints on Resilient Emerging Markets (3:30 p.m.)

After four to five years of substantial capital inflows into emerging markets, countries that will be more resilient are not net importers of capital, not those who need capital to fund the large gaps between low savings and high investment, but the opposite, said Frank Gill, a director of sovereign research for Europe, Middle East and Africa at S&P Global Ratings.

“There are credits like this in EMEA,” he said at a conference in Bali. “I’d say South Africa, despite its enormous challenges on growth, it benefits from a weaker rand because neither the private nor public sector has big foreign exchange funding requirements.”

“Maybe also oil exporters right now given that oil’s back above $80. We’re seeing some stabilization there,” he said.

In Latin America, countries that have successful floating exchange rates, credible monetary policy and a good economic team that makes timely fiscal and monetary adjustments, will fit the criteria.

“I’m thinking of Chile, Peru, Mexico,” said Joydeep Mukherji, managing director of sovereigns for the Americas.

Hammond Says Brexit May Require Fiscal Buffer (2:46 p.m.)

Britain’s Chancellor of the Exchequer Philip Hammond said he was readying the government’s reserves in case Brexit hits the economy and he needs to intervene.

Draghi Cautions Global Factors Matter for Growth: IMF Update

“We are in a period of uncertainty because of the Brexit negotiations,” Hammond said in an interview with Bloomberg TV. “We will keep an appropriate fiscal reserve so that if we need to we can intervene to support demand in the U.K. economy.”

Brexit talks are on a knife edge and both the U.K. and the European Union have stepped up contingency planning in case negotiations fail. Previously, Hammond has warned that failure to reach a divorce settlement with the EU before the U.K. leaves the bloc in March would hit GDP by as much as 10 percent over the next 15 years.

In the interview, Hammond also said the so-called “backstop” plan for avoiding a hard border with Ireland will probably be needed after the transition period ends in December 2020. But he warned that the backstop -- which would keep the U.K. inside the EU’s common tariff -- must be temporary.

The need to limit the time Britain stays in the EU tariff regime is one of Prime Minister Theresa May’s biggest headaches, with pro-Brexit ministers threatening to quit if she keeps the country locked in indefinitely.

Mexico, Colombia See Rough Times as Fed Raises (2:49 p.m.)

Mexico’s Finance Minister Jose Antonio Gonzalez Anaya and Colombia’s central bank Governor Juan Jose Echavarria underscored the need for emerging markets to prepare for volatility amid U.S. monetary policy normalization.

“As emerging market economies, we have to prepare, because in the past when you’re unprepared, you have the debt crises,” Gonzalez Anaya said in an interview. “There was a Fed monetary tightening in the early 1980s and we had the debt crisis. There was a Fed monetary tightening in the 1990s, and you had the Mexican tequila crisis.”

In Mexico, that’s meant pursuing fiscal discipline. Colombia’s Echavarria said that although capital outflows have been minimal in recent months, his nation has begun buying reserves.

“We want to increase the buffer because we’re going to have rough times in the world next two years, I’m afraid,’’ Echavarria said in an interview with Bloomberg TV. “The biggest risk to the global economy is of course the trade war, but for Latin America maybe it’s capital outflows. We want them to be orderly. If we get an orderly outflow because the U.S. is increasing rates and capital will moving there a little bit, I will be very satisfied.’’

Current Account Deficit Putting Pressure on Rupee (1 p.m.)

Rajnish Kumar, chairman of State Bank of India, discusses his outlook for the rupee, monetary policy, IL&FS crisis, India’s credit market, tighter regulations and his views on India’s economy. He speaks exclusively on "Bloomberg Markets: China Open" from the IMF-World Bank meetings in Bali.

No One Safe from Shocks in Integrated World (11:45 a.m.)

This week’s global market sell off is a vivid example of how closely wired the world economy now is, according to Changyong Rhee, the Asia-Pacific director at the International Monetary Fund. “This really shows very well how the world is integrated,” he told reporters. “No one can be free from these sort of shocks.”

In an earlier briefing, Rhee warned that headwinds from financial tightening and trade tensions may last for some time, which is why policy makers need to "save their ammunition for when it is truly needed."

No Magic Bullet For EMs Amid Volatility (11:15 a.m.)

There’s no “magic bullet” for how emerging economies can respond to the volatility that’s shaking markets, Hyun Song Shin, an economic adviser and head of research at the Bank for International Settlements, told Bloomberg Television. Instead, governments need to do the basics right like build buffers and bolster underlying fundamentals.

“There needs to be a certain amount of self awareness that when the going is good, there is plentiful funding but that is not simply a vote of confidence in your policy," he said. "It is a reflecting of global financial conditions. The lesson is you shouldn’t drink too much from the fountain of global liquidity”

Games of Thrones Battle Engulfing World: Widodo (10:46 a.m.)

Winter is coming for the world economy. That’s the warning from Indonesian President Joko Widodo, who channeled the popular TV series "Game of Thrones" in his keynote speech at the IMF and World Bank meetings in Bali. In stark language, he said alliances between major powers are breaking down and the world is rapidly descending into a battle for supremacy akin to those seen on the show. He also warned that emerging markets are under pressure and policy makers should allow for monetary patience and fiscal tolerance to offset rising trade protectionism, technological disruption and market turmoil.

“Are we so busy fighting with each other and competing against each other that we fail to notice the things which are increasingly threatening all of us alike, rich and poor, large and small,” Widodo said. “When victory and defeat have been achieved will we wake up to a world that is shattered. It will be an empty prize, to become the most successful economy in a drowning world.”

Read More on the Bali Meetings:

  • U.K.’s Hammond Hails ‘Change of Gear’ In Brexit Negotiations
  • For Pakistan’s 13th IMF Bailout, Expect Tougher Conditions
  • IMF Sees U.S. Policy Tightening Curbing Africa’s Capital Access
  • Large Foreign Inflows are Growth Risk, Singapore Deputy PM Says
  • Australia’s Treasurer Urges U.S. to Avoid Escalating Trade War

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